Unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up

Thursday, November 30, 2017

Broader political economy lessons of the tax bill

I have been assuming for some time now that some version of the horrible tax bill is bound to go through, probably within a week or two. After all, it is not as if any significant number of Congressional Republicans (and it would only take three of them in the Senate) appears to care in the slightest about how it would affect people other than their donors. Even the so-called "moderates" in the Senate, like Collins and Murkowski, readily accept "assurances" from Trump that they cannot be stupid enough to believe. They just want deniability or a fig leaf. I suspect the same holds for the supposed "budget hawks" such as Flake, whom I would guess - despite his not facing reelection - will ask no more of the "trigger" than that it qualify as a visible if irrelevant gesture. Likewise, while others have noted the significant remaining differences between the House and Senate bills, it's not as if anyone on either side actually cares enough about the substance, or real world effects, to let the bill die over mere trivialities such as whether 13 million people will lose their health insurance.

There may of course be political ramifications, such as electoral danger for House Republicans in blue states from repealing state and local income tax deductions (although the most electorally vulnerable may be freed to cast ineffectual votes against it). But the underlying theory is either pluto-populism - you buy enough support from the donors to unleash a blizzard of ads on racial and "cultural" issues - or else that, even if political payback is coming, you might as well do it while you can.

A broader lesson, beyond the mystery of why the Republican Party - it's not just Trump - seems to have completely rejected notions of responsible or informed governance, which did matter to its leaders in the 1980s - is that, at least when money has unchecked reign in politics, it causes the government's redistributive policy over time to have an anti-insurance feature.

Rising high-end inequality that has adverse social consequences for everyone else ought to trigger policies aimed at scaling it back. But instead, because it increases the relative political and economic power of those at the top, it is self-reinforcing. Greater high-end inequality triggers the adoption of policies that further increase high-end inequality, triggering the adoption of policies that still further increase high-end inequality. It's a positive feedback loop.

One further broader lesson is as follows. Political scientists for decades followed the so-called "rational voter" model, in which people voted in favor of their economic interests. But the model is basically false. One of its main problems (although there are many others) lies in the voting paradox. Given how unlikely it is that my vote would change the outcome, it would be decidedly irrational for me to spend any time figuring it out and voting that way. So even if I do vote, it must be for other reasons and reflect other impulses. To use a favorite illustration, how much time would you spend figuring out what is the best car for you to buy (if you're not inherently interested in cars) in the scenario where you had only one vote, among millions, with regard to which car you would actually get?

In such a world (i.e., our actual world), responsible governance depends less on voting, or on politicians' electoral self-interest as ostensible agents on behalf of their constituents, than on the ideology and value structure that the elites happen to have. Donors are obviously a big part of this, but not all - a lot, I think, lies in the mysterious black box realm that I will just call culture or values or sources of prestige because I don't have a more definite handle on it at present.

Thus, the fact, which I really don't understand and can't fully explain, that at least since 1994 Republican elites - though, obviously, not all conservative intellectuals - have increasingly and acceleratingly gone mad is at the core both of what ails us more broadly as a society, and of the apparent (I think) near certainty that a horrible, harmful, and recklessly irresponsible and sloppy and thoughtless tax bill is about to be enacted.

Of course, I could (I hope) be wrong about the tax bill, although not (I fear) about the rest.

About Me

I am the Wayne Perry Professor of Taxation at New York University Law School. My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform. My most recent books are (1) Decoding the U.S. Corporate Tax (2009) and (2) Taxes, Spending, and the U.S. Government's March Toward Bankruptcy (2006). My other books include Do Deficits Matter? (1997), When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity (2000), Making Sense of Social Security Reform (2000), Who Should Pay for Medicare? (2004), Taxes, Spending, and the U.S. Government's March Towards Bankruptcy (2006), Decoding the U.S. Corporate Tax (2009), and Fixing the U.S. International Tax Rules (forthcoming). I am also the author of a novel, Getting It. I am married with two children (boys aged 24 and 21) as well as three cats. For my wife Pat's quilting blog, see Patwig’s Blog.